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KOLKATA: Smoking is going to be costlier by more than 15%, with the Budget increasing taxes on regular-sized cigarettes and cigars by 18%.

However, prices of entry-level smaller cigarettes, which are of the sub-65 mm length, is going to remain unchanged as there has been no change in excise duties for that segment.

With the hike, a pack of 20 Classic cigarettes, which is currently sold at Rs 116, is expected to cost around Rs 130, while a pack of ten Gold Flake cigarettes of 69 mm length, which costs Rs 48, is likely to become Rs 55.

The cigarette makers, including market leader ITC, said it will take a few days for them to study the impact of rise in taxation and how much prices will go up. Analysts feel the companies may be compelled to absorb a portion of the hike in excise duty in the short term to ensure demand is not hit.

"It will be difficult to pass-on the entire duty-hike at one go since prices then would go up substantially and can impact business, especially since cigarette sales volume has remained flat till December 2012 due to tax hikes which increased prices," said a senior industry official, requesting anonymity.

Analysts say cigarette makers like ITC have reported a decline in sales volume till December 2012, since last year's increase in taxes and VAT on cigarettes in several high-consumption states like Uttar Pradesh and Rajasthan had increased prices by 12-15%.

Industry body, The Tobacco Institute of India director Udayan Lall says the industry is disappointed that cigarettes, which represent only 15% of total tobacco consumption, has been singled out for this steep increase of 18% in excise duty rates.

The cigarette industry feels the substantial increase in taxation will further increase consumption of lightly taxed or tax-evaded tobacco products like bidi, khaini, chewing tobacco and gutkha. It will also spur growth of illegal cigarettes.

"The affordability & accessibility of cheap illicit cigarettes will not only undermine revenue collections but also, the tobacco control policies of the government," Mr Lall said.

As per industry estimates, while cigarettes contribute nearly 75% of the tax revenues generated by the tobacco sector, it accounts for less than 15% of tobacco consumption in the country.

"Therefore, by targeting only cigarettes the tobacco tax base remains narrow and the differential between cigarettes and other tobacco products continues to increase. As evidenced in the past this only shrinks cigarette consumption, whilst the overall tobacco consumption in India continues to increase," said Mr Lall.